Natural gas shortages hit China as temperatures drop

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For many people across China, a shortage of natural gas and extremely cold temperatures are making a harsh winter unbearable. For Li Yongqiang, that means freezing nights without heat.

“We dare not turn on the heating overnight – after using it for five or six hours, the gas goes out again,” Mr Li, a 45-year-old grocer, said by telephone from his home. home in Hebei Province, northern China. “The gas shortage is really affecting our lives.”

The lack of natural gas, which is widely used across China to heat homes and businesses, has angered tens of millions of people and turned into caustic complaints on social media.

A person from Hebei Province wrote that she woke up early four nights a week because she was too cold to sleep despite having two quilts on her bed. A viral video on the internet in China shows an apartment building in another northern province, Shanxi, with the windows covered in bright red posters of the kind often seen at Lunar New Year – except those posters say “cold”.

Already this winter, hundreds of millions of people have caught Covid since Xi Jinping, China’s top leader, abandoned his zero Covid policy in early December. This policy had kept infections low but required costly precautions like mass testing – measures that were draining local government budgets. Many towns and cities now lack the money they need even to pay their own employees, let alone maintain an adequate supply of gas for homes.

The crisis, experts said, exposed systemic weaknesses in China’s energy regulations and infrastructure, while showing the scope of the global market turmoil sparked last year by China’s invasion of Ukraine. Russia.

Russia has long been a major supplier of natural gas to China and many regions, especially Europe. When Russia halted exports to Europe last summer, countries boosted world prices by stockpiling supplies from elsewhere. A surprisingly warm winter has since helped push petrol prices down in Europe, but the biting cold is now pushing them even higher in China.

At the same time, Chinese provincial and municipal governments have reduced the usual subsidies for natural gas consumption that used to keep heating bills down. The national government reacted by telling local governments to provide heating, without giving them money to pay for it. As a result, gas is effectively rationed, with households receiving the minimum necessary for cooking but very little for heating.

“It’s a perfect winter storm for Xi,” said Willy Lam, a longtime China policy analyst who is a Senior Fellow at the Jamestown Foundation. “Nothing seems to be working, partly because nobody seems to have a lot of money.”

This is the third basic energy crisis in just five years for Xi. His government abruptly banned coal-fired boilers in large areas of northern China in 2017 in favor of gas-fired boilers. It was a quick fix for air pollution, but residents soon found there wasn’t enough gas for all the new boilers.

Then in 2021, the price of coal jumped above the regulated price at which utilities could sell electricity generated from coal. Reluctant to lose money, utilities have temporarily shut down power plants, contributing to a wave of blackouts.

Many in Europe worried last year about how they would heat their homes this winter after Russian President Vladimir V. Putin reduced and then stopped natural gas shipments to the continent.

But Europe didn’t just have an exceptionally warm winter. Gas companies raised prices there, encouraging conservation, and governments subsidized consumers to offset at least some of the extra cost. European companies also accumulated large stocks of additional gas last fall. Worries have faded that families in Europe won’t have enough natural gas to heat their homes this winter.

In China, the temperature has become unusually freezing. Over the weekend, many weather stations in Heilongjiang province in China’s far north hit the lowest temperatures on record. Mohe City, China’s northernmost city, has hit lows for three straight days below minus 50 degrees Celsius. China’s meteorological agency issued nationwide severe cold weather warnings this week.

The government has taken note of the gas shortages.

“Some localities and enterprises have not implemented measures to guarantee the supply and price of energy for people’s livelihood,” said Lian Weiliang, vice chairman of the National Development and Reform, China’s main economic planning agency, at a press conference on January 13. .

He added that the national government would hold local officials responsible for supplying homes, but did not say Beijing would provide money to help them do so. China will also build more natural gas storage sites, he said, to try to avoid similar problems in the future.

China actually has enough natural gas to get through the winter, said Yan Qin, China energy specialist at Refinitiv, a data firm in London. The problem is that price regulation and lower subsidies prevent gas from reaching households in northern China when temperatures drop.

Much of the world shunned Russian energy during the war, but China stepped up its purchases of natural gas from Russia. Imports from Russia of liquefied natural gas, which can be transported by ship, jumped 42.3% last year as Chinese companies bought cargo that companies in Japan and elsewhere were no longer willing to take. buy due to Russia’s invasion of Ukraine.

Much of this Russian gas was imported at very high prices. But Chinese regulations strictly limit the price at which municipal and cantonal gas distributors are allowed to sell gas to households. This winter, the wholesale gas price is up to three times the price distributors are allowed to charge residential customers, said Jenny Zhang, natural gas expert at Lantau Group, an energy and power consultancy in Hong Kong specializing in the mainland. China.

Distributors are allowed to pass on additional costs to industrial and commercial gas users, but not to private individuals. So when prices rise, there is a strong incentive for companies to shut down homes and sell primarily to industrial and commercial users.

The problem is particularly acute in the populous province of Hebei, near Beijing. Many local gas companies have been at least partially privatized in recent years.

“They don’t have deep pockets when the gas price swings,” Ms. Zhang said.

And local governments in places like Hebei are under severe financial constraints.

Their main source of income, land lease sales to developers, dried up last year as pandemic costs soared. The area let to developers fell 53% last year as the property sector struggled financially.

Hebei Province, which surrounds three sides of Beijing and has a population of 74.5 million, has the worst of all. The national government has been particularly insistent over the past five years for homes and businesses in Hebei to switch to gas, as air pollution from their use of coal is spreading rapidly in Beijing. Many residents, including Mr. Li, the grocer, no longer have coal or charcoal stoves.

Shijiazhuang, the provincial capital, was then among the first cities to run out of money for Covid testing last fall. It moved quickly to drop testing late last year as soon as Beijing began to show flexibility on the “zero Covid” policy, only to find itself with an immediate surge of cases. Now temperatures in the mountainous province are dropping well below freezing.

With declining revenues and rising costs, local governments in Hebei have little financial means to quickly resume subsidizing gas for their customers.

“If they could subsidize,” said Ms. Qin, an energy specialist in China, “we wouldn’t have this shortage.”

The research was contributed by Li you, John Liu, Olivia Wang and Claire Crazy.